Learning Outcomes
This article explains the fundamental fiduciary duty that trustees must not profit from their position. It outlines the general rule that trusteeship is gratuitous and details the specific exceptions where trustees may receive remuneration. After reading this article, you should understand the principles governing trustee payment, including the roles of the trust instrument, statute (particularly the Trustee Act 2000), beneficiary consent, and court orders. This knowledge will assist you in applying the relevant legal principles to SQE1 assessment scenarios involving trustee duties and remuneration. In particular, you should be able to distinguish reimbursement of properly incurred expenses from remuneration; identify and apply charging clauses; determine when statutory rights under the Trustee Act 2000 (ss 28–29) apply or are excluded; recognise when co‑trustee written consent is essential; and explain the court’s cautious approach to awarding or increasing remuneration in exceptional cases.
SQE1 Syllabus
For SQE1, you are required to understand the core principles of fiduciary obligations, particularly the rules surrounding trustee remuneration and the exceptions to the general principle that trustees should not profit from their role, with a focus on the following syllabus points:
- The nature of the fiduciary relationship and its obligations.
- The general rule that trustees act gratuitously and the no-profit rule.
- Exceptions permitting trustee remuneration, including provisions in the trust instrument (charging clauses).
- Statutory provisions allowing remuneration (Trustee Act 2000, ss 28-29), including what “acting in a professional capacity” means and the trust corporation position.
- The ability for beneficiaries to consent to remuneration, including requirements that beneficiaries be sui juris and the need for full and informed consent.
- The court's power to authorise payment or increase remuneration in exceptional circumstances (e.g., Re Duke of Norfolk's Settlement Trusts).
- The distinction between remuneration and reimbursement for expenses, and the need to account for incidental profits (e.g., commissions, directors’ fees).
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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Which principle generally prevents trustees from being paid for their services?
- The duty of care
- The duty to act impartially
- The no-profit rule
- The rule against self-dealing
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Under the Trustee Act 2000, which type of trustee may be entitled to reasonable remuneration even if the trust instrument is silent, provided certain conditions are met?
- A lay trustee acting alone
- A professional trustee where all co-trustees consent in writing
- Any beneficiary acting as a trustee
- A trustee who is also a settlor
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True or False: If all adult beneficiaries with full mental capacity consent, they can authorise payment to a trustee even if the trust instrument forbids remuneration.
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What is the primary source a trustee should check to determine if they are entitled to be paid for their work?
Introduction
A fundamental aspect of trust law is the fiduciary relationship between trustees and beneficiaries. Trustees hold a position of trust and confidence, legally obligated to manage trust assets solely for the beneficiaries' benefit. Central to this relationship are the 'no-conflict' and 'no-profit' rules, designed to ensure trustees act with undivided loyalty. This article focuses on the no-profit rule as it applies to trustee remuneration, exploring the general principle that trusteeship is unpaid and the key exceptions that permit payment. Understanding these rules is essential for advising trustees and beneficiaries and for tackling related SQE1 questions. Alongside remuneration, trustees must remain alert to related areas in which profits can arise, such as commission and directors’ fees, and appreciate the difference between legitimate reimbursement of expenses and impermissible profit.
Key Term: Fiduciary
A person who holds a legal or ethical relationship of trust with one or more other parties (principals or beneficiaries). The fiduciary must act in the best interests of the principal/beneficiary. Trustees are fiduciaries to the beneficiaries of the trust.
The Fiduciary Duty and the No-Profit Rule
Trustees are fiduciaries. This means they owe strict duties of loyalty and good faith to the beneficiaries of the trust. They must avoid situations where their personal interests could potentially conflict with their duties to the trust (the 'no-conflict' rule).
Key Term: No-Profit Rule
An equitable principle stating that a fiduciary, such as a trustee, must not make any unauthorised profit from their position.
Flowing from the duty of loyalty is the 'no-profit' rule. This fundamental principle dictates that a trustee must not derive any personal advantage or profit from their position as trustee, beyond what is authorised. This includes receiving payment for the time and effort spent administering the trust. The rationale is that allowing personal profit could tempt a trustee to prioritize their own financial gain over the beneficiaries' interests, creating a conflict.
The rule is strict. Even where the trust could not itself have taken advantage of an opportunity, a fiduciary who uses trust‑derived information or position to profit must account to the beneficiaries (Keech v Sandford; Boardman v Phipps). That obligation to “account for profits” is distinct from compensation for loss: the former strips unauthorised gains; the latter restores the fund where a breach causes loss.
Key Term: Account of Profits
An equitable remedy requiring a fiduciary to surrender unauthorised gains obtained by virtue of their fiduciary position.
Therefore, the starting point is that trusteeship is a gratuitous office; trustees are generally expected to act without payment.
Worked Example 1.1
Anya and Ben are trustees of a family trust holding various properties. Ben is a property developer. He identifies a potentially lucrative development opportunity using information he gained solely through his role as trustee. He purchases the adjacent land himself and makes a significant profit. Is Ben entitled to keep this profit?
Answer:
No. Ben obtained the opportunity and information because he was a trustee. This represents a profit derived from his fiduciary position. Even if the trust itself could not or would not have pursued the opportunity, Ben is in breach of the no-profit rule (and potentially the no-conflict rule). He must account for the profit to the trust beneficiaries.
Reimbursement vs Remuneration
It is important to distinguish between reimbursement for expenses and remuneration for services.
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Reimbursement: Trustees are entitled to be reimbursed out of the trust fund for all out-of-pocket expenses properly incurred in the administration of the trust (Trustee Act 2000, s 31(1)). This might include travel costs for trustee meetings, postage, reasonable costs of professional advice (e.g., legal or valuation fees), insurance premiums relating to trust property, and filing fees. Reimbursement is not considered 'profit'. Trustees may also be indemnified from the trust fund for liabilities properly incurred in good faith.
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Remuneration: This refers to payment for the trustee's time, skill, and effort in acting as a trustee. As noted, this is generally not permitted unless specifically authorised. Payment for time spent (for example, charging an hourly rate for reviewing accounts) is remuneration, not reimbursement, and should not be disguised as “expenses”.
A trustee must also avoid incidental profits linked to trust business. For example, if a trustee places trust investment work with their own firm and receives commission, the commission is an unauthorised profit which must be accounted to the trust unless expressly authorised (e.g., Williams v Barton).
Exceptions to the No-Profit Rule: When Can Trustees Be Paid?
Despite the general rule against remuneration, there are recognised exceptions that allow trustees to be paid for their services. These exceptions acknowledge that managing a trust, especially a complex one, requires skill and time, and it may be necessary or desirable to compensate those undertaking the role, particularly professionals.
The primary exceptions are:
- Authorisation by the trust instrument.
- Authorisation by statute (Trustee Act 2000).
- Authorisation by the beneficiaries.
- Authorisation by the court.
Authorisation by the Trust Instrument
The most common way for a trustee to be entitled to remuneration is through an express provision in the trust instrument (the deed or will creating the trust).
Key Term: Charging Clause
A provision expressly included in a trust instrument (will or trust deed) that authorises trustees (or specific trustees, like professionals) to charge for their services.
Settlors often include charging clauses, particularly when appointing professional trustees like solicitors or accountants, to ensure they are compensated for their specialized knowledge and time. The scope of the clause must be carefully examined – it might permit all trustees to charge, or only professionals, and may specify the basis of charging (e.g., hourly rates, a percentage of the fund). Courts tend to construe charging clauses strictly. Ambiguity is resolved against the trustee seeking to rely on remuneration; clarity in drafting is therefore important.
If a charging clause authorises “professional trustees” to charge, the trustee must be acting “in a professional capacity” in providing services in connection with trust management or administration. If a clause authorises remuneration for a specified category (for example, “solicitor‑trustees”), a trustee outside that category cannot rely on the clause. Where the instrument provides remuneration, statutory rights under s 29 TA 2000 are generally excluded (see below).
Authorisation by Statute (Trustee Act 2000)
The Trustee Act 2000 provides statutory authority for certain trustees to charge reasonable remuneration, even if the trust instrument is silent.
- Professional Trustees: Section 29(1) permits a trustee acting in a professional capacity to charge reasonable remuneration for services provided, even if those services could have been provided by a lay trustee. This applies only if all co-trustees agree in writing (s 29(2)), unless the trustee is a trust corporation. A trustee acts in a professional capacity if they act in the course of a profession or business which involves providing services connected with trust administration or management (s 28(5)). Solicitors, accountants, and financial advisers acting as trustees commonly fall into this category.
Key Term: Professional Trustee
Under the Trustee Act 2000, a trustee acting in the course of a profession or business which includes the provision of services in connection with the management or administration of trusts.Key Term: Reasonable Remuneration
A sum that is fair having regard to the nature of the services provided, the size and complexity of the trust, market rates, and the skill and experience of the trustee providing the services.
- Trust Corporations: A trust corporation acting as a trustee can charge reasonable remuneration under s 29(1). Unlike individual professional trustees, a trust corporation can charge even if acting as a sole trustee (s 29(4)). No co‑trustee consent is required.
Key Term: Trust Corporation
A corporate trustee authorised to act as trustee (often a bank trust department or specialist firm), with statutory rights including charging reasonable remuneration and giving valid receipts when acting alone for land sales.
- Lay Trustees: The Act does not provide a general power for lay trustees (those not acting in a professional capacity) to charge remuneration. Their services remain gratuitous unless authorised by the trust instrument, beneficiaries, or the court.
Important limits apply:
- The statutory right to charge under s 29 only operates if the trust instrument makes no provision about remuneration (s 29(5)). Where a charging clause exists, statutory rights are displaced.
- For individual professional trustees, co‑trustee written consent must be obtained before charging (best practice is to agree the remuneration basis and scope prospectively).
- What is “reasonable” is fact-specific. The trustee should keep contemporaneous records of work done, rates applied, and approvals obtained.
Section 28 TA 2000 clarifies that any payment for services authorised by the trust instrument is treated as remuneration, not a gift, and makes clear that remuneration can be claimed even where the services could have been performed by a lay trustee.
Authorisation by Beneficiaries
Trustees may be paid if all the beneficiaries collectively agree. For this consent to be valid:
- All beneficiaries must be sui juris (of full age – 18 or over – and sound mind).
- They must all freely consent with full knowledge of the material facts, including the proposed scope of work, fee rates, and any potential conflicts.
- Where beneficiaries’ interests are contingent, future, or there are minors or unborn beneficiaries, unanimous valid consent will usually not be possible.
Key Term: Sui Juris
Of full legal age and under no disability, able to give binding consent.
Beneficiary consent should be in writing. It is prudent to set out the remuneration basis, billing arrangements, and how any potential conflicts will be managed. If beneficiaries later challenge payment, the trustee will need to show informed consent.
Authorisation by the Court
The court has an implicit jurisdiction to authorise remuneration for trustees, even where none is provided for elsewhere. It may also increase remuneration fixed by the trust instrument. The court exercises this power cautiously, balancing the principle that trusteeship is gratuitous against the need to ensure the trust is well-administered, potentially requiring payment to secure or retain suitable trustees (Re Duke of Norfolk's Settlement Trusts [1981] Ch 618). This is typically reserved for exceptional circumstances where the duties are particularly onerous or specialist.
The court may also allow trustees an “allowance” out of unauthorised profits where they acted honestly and conferred genuine benefit on the trust (as in Boardman v Phipps), but allowances are distinct from remuneration and not routinely awarded.
Worked Example 1.2
Leo and Martha are trustees of a will trust established in 2015. The will contains no charging clause. Leo is a retired teacher (lay trustee). Martha is a solicitor whose firm offers trust administration services (professional trustee). Can they charge for their time?
Answer:
Leo, as a lay trustee, cannot charge for his time unless authorised by the beneficiaries (if all sui juris) or the court. Martha, acting in a professional capacity, may be entitled to reasonable remuneration under s 29 TA 2000, but only if Leo (her co-trustee) agrees in writing.
Worked Example 1.3
A trust deed explicitly states "No trustee shall be entitled to any remuneration for acting as trustee under this settlement". Can the professional trustee still charge under the Trustee Act 2000?
Answer:
No. The statutory power under s 29 TA 2000 only applies where the trust instrument does not contain provision about remuneration (s 29(5)). An express prohibition in the deed overrides the statutory power. Remuneration would only be possible with beneficiary or court authorisation.
Worked Example 1.4
A bank’s trust department (a trust corporation) is appointed as sole trustee of a sizeable discretionary trust. The trust instrument is silent on trustee remuneration. May the trust corporation charge fees?
Answer:
Yes. Under s 29(1) TA 2000, a trust corporation acting as trustee may charge reasonable remuneration. Section 29(4) confirms the trust corporation can charge even when acting as sole trustee, and no co‑trustee consent is required. Fees must still be reasonable and transparently documented.
Worked Example 1.5
A trust deed authorises “solicitor‑trustees” to charge their usual professional rates. One trustee is a chartered surveyor acting within their professional business. The instrument otherwise makes no provision about remuneration. Can the surveyor rely on s 29 TA 2000?
Answer:
No. Because the instrument contains express provision about remuneration of trustees (albeit only for solicitor‑trustees), s 29(1) TA 2000 is disapplied (s 29(5)). The surveyor cannot rely on the statutory right and may only be remunerated with beneficiary consent or by court order.
Exam Warning
Remember that the statutory power under s 29 TA 2000 applies only if the trust instrument makes no provision regarding remuneration. Always check the trust document first. Also, note the requirement for written consent from co-trustees for a professional trustee to charge under s 29. Distinguish clearly between:
- Reimbursement of properly incurred expenses (TA 2000, s 31) and remuneration for time spent;
- Authorisation for a trustee’s firm to provide services (and be paid) versus payment to the trustee personally;
- Incidental profits (such as commission) which must be accounted to the trust unless expressly authorised;
- Directors’ fees: a trustee-director appointed using trust votes must usually account their director remuneration to the trust unless authorised or independently appointed.
Conclusion
The default position in equity is that trustees must act without payment, reflecting the core fiduciary duty not to profit from the trust. However, practicalities and the need for professional management mean exceptions are necessary. Authorisation can come from the trust instrument itself, statute (primarily the Trustee Act 2000 for professional trustees and trust corporations), unanimous consent from sui juris beneficiaries, or a court order. Each route has conditions and limits: charging clauses are construed strictly; statutory rights require co‑trustee consent and a silent instrument; beneficiary consent must be informed, unanimous and capable; and court awards of remuneration are exceptional. Understanding these distinct routes to entitlement, and the related rules on reimbursement and incidental profits, is essential for advising on trust administration and tackling SQE1 scenarios.
Key Point Checklist
This article has covered the following key knowledge points:
- Trustees are fiduciaries and owe strict duties of loyalty; they must avoid conflicts and unauthorised profits.
- The 'no-profit' rule generally prevents trustees from receiving payment for their services.
- Trustees are entitled to reimbursement (and indemnity) for properly incurred expenses under TA 2000, s 31; reimbursement is not remuneration.
- Remuneration is distinct from reimbursement and requires specific authorisation.
- Exceptions allowing remuneration exist via the trust instrument (charging clause), statute (Trustee Act 2000), beneficiary consent, or court order.
- The Trustee Act 2000 allows professional trustees and trust corporations to charge reasonable remuneration under specific conditions:
- s 29 applies only when the instrument is silent on remuneration.
- Individual professional trustees require co‑trustee written consent.
- Trust corporations can charge when acting as sole trustee without co‑trustee consent.
- Lay trustees cannot charge unless authorised by the instrument, beneficiaries, or the court.
- Beneficiary consent must be unanimous and given by beneficiaries who are sui juris, with full knowledge of material facts.
- Courts may authorise remuneration or increase it only in exceptional circumstances and will balance gratuitous trusteeship against the trust’s interests.
- Incidental profits (e.g., commission, directors’ fees arising from trust appointments) must be accounted to the trust unless expressly authorised.
Key Terms and Concepts
- Fiduciary
- No-Profit Rule
- Charging Clause
- Professional Trustee
- Reasonable Remuneration
- Trust Corporation
- Sui Juris
- Account of Profits